Understanding Uninstalled Materials Under the New Revenue Standard

Typically, uninstalled materials consist of standard materials that are easily transferable to other jobs and those which are custom ordered for projects.  The cost of standard materials was never to be included in job costs until installation occurred.  Conversely, if custom materials met certain criteria, you could include the cost in job progress prior to ASC 606 implementation.

After implementation, custom materials are treated as follows:

  • If the contractor still retains control of the materials, they are reported on the contractor’s balance sheet as inventory.
  • If the job owner has control of the materials, the cost of materials only (no profit) is included in job costs and revenue.

How do you determine “control”?  That’s a great question, but some things to consider may be:

  • Has the owner been billed for/paid for the materials included on the AIA billing?
  • If the contractor was fired from the job by the owner, who would take possession of the materials?
  • If the contractor declared bankruptcy, who would take control of the materials?

The following illustrates how owner controlled uninstalled materials are reported before and after implementation of the new standards:

 

 

 

 

 

 

KatzAbosch has individuals experienced in contractor issues and trained in process improvement using lean six sigma principles that can help you through this transition. If you think you are ready for implementation, please read our article on “Implementing Uninstalled Materials Under the New Revenue Recognition Standards”. It will provide insight on six key questions to ask yourself to see if your organization is prepared to implement.

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